Daily Market Update – February 23, 2015

 

  

 

Daily Market Update – February 23, 2015 (9:00 AM)

Although it doesn’t look as if the week is going to get off to the kind of start that takes us to more record high closes, there will be plenty of opportunities this week.

With most of the major retailers reporting earnings this week, and more importantly providing some  future guidance, we may finally get to know whether lower energy costs can translate into an expanding economy.

The week then ends with another GDP report which a number of months ago was predicted to greatly expand due to decreasing energy costs, as about 70% of the GDP is dependent on consumer spending.

Also during the week will be 2 days of congressional testimony by Janet Yellen and there is always the possibility of disclosing something, especially regarding the timing of any interest rate increases, that hasn’t been made public previously.

With Bernanke and Yellen the market rarely moved as much when they provided testimony as it did during the Greenspan years.

The real difference, though, was that when Bernanke or Yellen responded to questions posed to them the answers were generally understood. If there was something truly newsworthy, the market generally knew how to react. Instead, when Greenspan spoke, the market was never sure of what he meant and they would alternate between large drops and surges, often within minutes of one another.

That, at least isn’t likely to happen.

As another monthly option cycle gets ready to begin, it’s nice closing the previous month with a fair number of assignments and the cash to play along, if warranted.

Last Friday’s very unexpected response to a temporary solution to the Greek crisis isn’t likely to have much impact on things going forward until approaching that 4 month date down the road when the crisis could start all over again.

Because Friday’s events were really a “one-off” kind of thing there’s not too much reason to believe that those new closing highs will be the starting point for even more due to some technical set of factors or newly discovered optimism.

Instead, this week will likely stand on its own merits based on the major events planned for the week.

With a few positions et to expire this week and with volatility once again falling, the emphasis will be on finding short term option expiration opportunities and trying to populate this week and perhaps next week, as well, with expiring contract positions. Actually, that’s probably a secondary emphasis. I would still rather generate the week’s income stream from finding some chance to sell calls on existing uncovered positions.

While retail sales and Yellen’s two days on Capital Hill will be center stage there is still plenty of reason to still reserve some focus for oil prices and interest rates.

It’s not always about stocks.

As long as those continue to bounce wildly it’s hard to envision any particular direction for the stock market. You can also add precious metals to that short list, too.

Among asset classes there is often a flow of money from major players as one opportunity looks better than the next. With the constant back and forth seen in some of those markets there’s reason not to be fully committed to any of the markets, even the ones that seem to be reasonably stable, as a collapse in the other markets could result in a quick outflow even from the relatively healthy market, such as to meet margin obligations in other markets.

It’s too bad that we’re not seeing some of the same back and forth in the broader stock market, as that would really drive premiums much higher, as is the case for many energy positions, right now. In the best case scenario even with all of that volatility prices would remain basically unchanged as they have recently been in the energy and precious metals markets.

For now, it’s an issue of waiting to see what character the market assumes this week and not being too reckless with newfound cash.

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Dashboard – February 23 – 27, 2015

 

 

 

 

 

SELECTIONS

MONDAY:   No follow through to last week’s closing highs to begin the week, but plenty of possible catalysts during the week, including lots of retail sales and a week ending GDP

TUESDAY:    Janet Yellen’s testimony begins today as the market looks as if it is going to get off to a very sleepy start in continuation of yesterday’s trading and for most of the past week, as well.

WEDNESDAY:  Day 2 of Yellen’s congressional testimony looking to get markets off to the same start as did yesterday. It would be nice if it could also come to the same finish.

THURSDAY:   Today looks as if it may be another quiet day ahead of tomorrow’s GDP report, as yesterday closed at yet another new high on the DJIA

FRIDAY:  Today’s GDP does nothing to enhance markets after reducing last quarter’s reported growth

 

 

 


 



 

                                                                                                                                           

Today's TradesCash-o-Meter

 

 

 





 “SNEAK PEEK AT NEXT WEEK” APPEARS ON FRIDAYS

Sneak PeekPie Chart Distribution

 

 

 

 

 

 

 

Weekly Summary

  

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Weekend Update – February 22, 2015


After setting a new high on the S&P 500 last week, the bull was asleep this holiday shortened trading week, having been virtually flat for the first 3 days of trading and having been devoid of the kind of intra-day volatility that has marked most of 2015.

That’s of course only if you ignore how the week ended, as this time the S&P 500 wasn’t partying alone, as the DJIA and other indexes joined in recording new record highs.

For the briefest of moments as the market opened for trading on Friday morning it looked as if that gently sleeping bull was going to slip into some kind of an unwarranted coma and slip away, as the DJIA dropped 100 points with no consequential news to blame.

However, as has been the case for much of 2015 a reversal wiped out that move and returned the market to that gentle sleep that saw a somnolent market add a less than impressive 0.1% to its record close from the previous week.

In a perfect example of why you should give up trying to apply rational thought processes to an irrational situation, the market then later awoke from that gentle sleep in a paroxysm of buying activity, as an issue that we didn’t seem to care about before today, took hold, thereby demonstrating the corollary to “It is what it is” by showing that it only matters when it matters.

That issue revolved around Greece and the European Union. The relationship of Greece and the EU seemed to be heading toward a potential dissolution as a new Greek government was employing its finest bluster, but without much base to its bravado. As it was all unfolding, this time around, as compared to the last such crisis a few years ago, we seemed content to ignore the potential consequences to the EU and their banking system.

While that situation was being played out in the news most analysts agreed it was impressive that US markets were ignoring the drama inherent in the EU dysfunction. The threat of contagion to other “weak sister”nations in the event of a member nation’s exit and the very real question of the continuing integrity of that union seemed to be an irrelevancy to our own markets.

Yet for some reason, while we didn’t care about the potential bad news, the market seemed to really care when the bluster gave way to capitulation, even though the result was reminiscent of the very finest in “kicking the can down the road” as practiced by our own elected officials over the past few governmental stalemates.

From that moment on, as the rumors of some sort of accord were being made known the calm of the week gave way to some irrational buying.

Of course, when that can was on our own shores, the result in our stock market was exactly the same when it was kicked, so the lesson has to be pretty clear about ever wanting to do anything decisive.

Next week, however, may bring a rational reason to do something to either spur that bull to new heights or to send it into retreat.

Forget about the impending congressiona
l testimony that Janet Yellen will be providing for 2 days next week as the impetus for the market to move. Why look for external stimulants in the form of economist-speak when you already have all of the ingredients that you need in the form of fundamentals, a language that you understand?

While “Fashion Week” was last week and exciting for some, the real excitement comes this week with the slew of earnings from major national retailers trying to sell all of those fashions. While their backward looking reports may not reflect the impact of decreased energy prices among their customers, their forward looking comments may finally bring some light to what is really going on in the economy.

With “Retail Sales” reports of the past two months, which also include gasoline purchases, having left a bad taste with investors, a better taste of things to come has already been telegraphed by some retailers in their rosy comments in advance of their earnings release.

This coming week could offer lots of rational reasons to move the market next week. Unfortunately, that could be in either direction.

With earnings reports back on center stage after a relatively quiet earnings week, stocks were mostly asleep, but, that was definitely not the case in other markets. If looking for a source of contagion there are lots of potential culprits.

Bond markets, precious metals and oil all continued their volatility. The 10 Year Treasury Bond, for example saw abrupt and large changes in direction this week and has seen rates head about 30% higher over the past couple of weeks after the FOMC sowed some doubt into their intentions and timing.

^TNX Chart

^TNX data by YCharts

While Janet Yellen may shed some light on FOMC next steps and their time frame, she is, to some degree held hostage by some of those markets, as traders move interest rates and energy prices around without regard to policy or to what they position they held deeply the day before.

For my part, I don’t mind the marked indecision in other markets as long as this current market in equities can keep moving forward a small step at a time in its sleep.

As usual, the week’s potential stock selections are classified as being in Traditional, Double Dip Dividend, Momentum or “PEE” categories.

Yahoo (NASDAQ:YHOO) after all of the
se years is sadly in the position of having to establish an identity for itself, although with a market capitalization of $42 billion lots of that sadness can be assuaged.

It’s difficult to think of another situation in which a CEO has seen shares rise nearly 180% during their tenure, in this case about 30 months, yet remain so highly criticized. However, after a storied history it is a little embarrassing to be best known as the company that once owned Alibaba (NYSE:BABA), although the billions received and the billions more to come help to ease some of that awkwardness.

With Alibaba’s next lock-up expiration coming on March 18, 2015, there’s potentially some downward pressure on Yahoo which still has a sizeable stake in Alibaba, However, as has been seen over the last few years the flooding of the market with new shares doesn’t necessarily result in the logical outcome.

In the meantime, while there is some concern over the impact of that event on Yahoo shares and as Alibaba has its own uncertainties beyond the lock-up expiration, option premiums in Yahoo have gotten a little richer as shares have already come down 11% since earnings were reported. After that decline either a covered call or put sale, as an intended very short term trade may be appropriate as waiting for Yahoo to find itself before you grow too old.

For as long as Jamie Dimon remains as its CEO and Chairman, JP Morgan Chase (NYSE:JPM) isn’t likely to have any identity problems. Despite not having anywhere near the returns of Yahoo during the period of his tenure and having paid out much more in regulatory fines than Yahoo received for its Alibaba shares, the criticism is scant other than by those who battle over the idea of “too big too faii” and the actual fine-worthy actions.

However, just as the CEO of Yahoo was able to benefit from an event outside of her control, which was the purchase of Alibaba by her predecessor years earlier, Dimon stands to benefit from what will eventually be a rising interest rate rate environment. Amid some confusion over the FOMC’s comments regarding the adverse impact of low rates, but also the adverse impact of raising them too quickly, rates resumed their climb after a quick 4% decline. While the financial sector wasn’t the weakest last weak, energy had that honor, there isn’t too much reason to suspect that interest rates will return to their recent low levels.

BGC Partners (NASDAQ:BGCP) is another company that has no such identity problems as much of its identity is wrapped up in its Chairman and CEO, who has just come to agreement with the board of GFI Group (NYSE:GFIG) in his takeover bid.

For the past 10 years BGC Partners has closely tracked the interest rate on the 10 Year Treasury Note, although notably during much of 2014 it did not. Recently, however, it appears that relationship is back on track. If so, and you believe that rates will be heading higher, the opportunity for share appreciation exists. In addition to that, however, is also a very attractive dividend and shares do go ex-dividend this week. With only a monthly option contract available and large gaps between strike levels, this is a position that may warrant a longer term time frame commitment.

Also going ex-dividend this week are McDonalds (NYSE:MCD) and SanDisk (NASDAQ:SNDK).

I often think about buying shares of McDonalds, but rarely do so. Most of the time that turned out to have been a bad decision if looking at it from a covered option perspective. From a buy and hold perspective, however, it has been more than 2 years since there have been any decent entry points and returns.

With a myriad of problems facing it and a new CEO to tackle them my expectation is that more bad news is unlikely other than at the next earnings release when it wouldn’t be too surprising to see the traditional use of charges against earnings to make the new CEO’s future performance look so much better by comparison. Between now and that date in 2 months, I think there will be lots of opportunity to reap option premiums from shares, as I anticipate it trading in a narrow range or higher. Getting started with a nice dividend this week makes the process more palatable than many have been finding the menu.

SanDisk is a company that was written off years ago as being nothing more than a company that offered a one time leading product that had devolved into a commodity. You don’t, however, see too many analysts re-visiting that opinion as they frequently offer buy recommendations on shares.

SanDisk is also a company that I’ve very infrequently owned, but almost always consider adding shares when I have cash reserves and need some more technology positions in my portfolio. After a week of lots of assignments both are now the case and while its dividend isn’t as generous as that of McDonalds, it serves as a good time for entry and offers a very attractive option premium even during a week that it goes ex-dividend.

Despite a 10% share price increase since earnings, it is still about 15% below its price when it warned on earnings just a week prior to the event and received a belated downgrade from “buy to hold.” WIth continuing upside potential, this is a position that I would consider either leaving some shares uncovered or using more than one strike level for call sales

Most often when considering a trade involving a company about to report earnings and selling put options, my preference is to avoid taking ownership of shares. Generally, put sales shouldn’t be undertaken unless willing to accept the potential liability of ownership, but sometimes you would prefer to only take the reward and not the risk, if you can get away with doing so.

Additionally, I generally look for opportunities where I can receive a 1% ROI for the sale of a weekly put contract that is a strike level below the lower range of the implied move determined by the option market.

However, in the cases of Hewlett Packard (NYSE:HPQ) and The Gap (NYSE:GPS) that 1% ROI is right at the lower boundary, but I would still consider the prospect of put sales because I wouldn’t shy away from share ownership in the event of an adverse price move.

The Gap, which makes sharp moves on a regular basis as it still reports monthly sales, did so just a week earlier. It seems to also regularly find itself alternating in the eyes of investors who send shares higher or lower as if each month brings deep systemic change to the company. However, taking a longer term view or simply looking at its chart, it’s clear that shares have a way of just returning to a fleece-lik
e comfortable level in the $39-$41 range.

In the event of an adverse price movement and facing assignment, puts can be rolled over targeting the next same store sales week as an expiration date or simply taking ownership of shares and then using that same date as a time frame for call sales. If rolling over puts I would be mindful of an April ex-dividend date and would consider taking ownership of shares prior to that time if put contracts aren’t likely to expire.

Since I have room for more than a single new technology position this week, Hewlett Packard warrants a look, as what was once derisively referred to as “old tech” is once again respectable. While I would consider starting the exposure through the sale of puts, with an ex-dividend date coming up in just a few weeks, I’d be more inclined to take assignment in the event of an adverse price move after earnings.

Finally, there’s still reason to believe that energy prices are going to continue to confound most everyone. The coupling and de-coupling of oil to and from the stock market, respectively has become too unpredictable to try to harness. However, given the back and forth seen in prices over the past month as a floor may have been put in oil prices, there may be some opportunity in considering a pairs trade, such as Marathon Oil (NYSE:MRO) and United Continental (NYSE:UAL).

United Continental and other airlines have essentially been mirror images to the moves in oil, although not always for clearly understandable reasons, as the relative role of hedging can vary among airlines, although United has reportedly closed out its hedged positions and may be a more pure trading candidate on the basis of fuel prices..

While it’s not too likely that either of these stocks will move in the same direction concurrently, the short term volatility in their prices and the extremely appealing premiums may allow the chance to prosper in one while awaiting the other’s turn to do the same.

The idea is to purchase shares and sell calls of both as a coupled trade with the expectation that they would be decoupled as oil rises or falls and one position or another is either rolled over or assigned, as a result. The remaining position is then managed on its own merits or possibly even re-coupled.

As with earnings related trades that I make that are usually agnostic to the relative merits of the company, focusing only on the risk – reward proposition, this trade is not one that cares too much about the merits of either company. Rather, it cares about their responses to the unpredictable movements in oil price that have been occurring on daily and even on an intra-day basis of late.

Traditional Stocks: JP Morgan Chase, Marathon Oil

Momentum Stocks: United Continental Holdings, Yahoo

Double Dip Dividend: BGC Partners (2/26), McDonalds (2/26), SanDisk (2/26)

Premiums Enhanced by Earnings: Hewlett Packard (2/24 PM), The Gap (2/26 PM)

Remember, these are just guidelines for the coming week. The above selections may become actionable, most often coupling a share purchase with call option sales or the sale of covered put contracts, in adjustment to and consideration of market movements. The overriding objective is to create a healthy income stream for the week with reduction of trading risk.

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Week in Review – February 16 – 20, 2015

 

 

Option to Profit Week in
Review –  February 16 – 20,  2015
 
NEW POSITIONS/STO NEW STO ROLLOVERS CALLS ASSIGNED/PUTS EXPIRED CALLS EXPIRED/PUTS ASSIGNED CLOSED
3 / 3 1 2 6  /  0 2  / 0 0

    

Weekly Up to Date Performance

February 16 – 20,   2015

Finally, a week with a little of everything.

Although I said exactly that last week, too.

New positions beat both the adjusted and  the unadjusted S&P 500 by 2.2% for the week.

Heading into Friday the market was up only 0.1% for the shortened week, but Friday’s strong showing, especially after a dismal start, turned the market toward record levels in both the DJIA and S&P 500, in addition to other indexes.

With 7 assigned positions this week the total number for 2015 is still lagging comparable periods of earlier years, but is finally growing. Thus far the positions closed in 2015 are an average of 5.5% higher, while the comparable time adjusted S&P 500 average performance has been only 2.6% higher. That 2.9% difference represents a 110.3% performance differential that is very unlikely to be maintained through the year, particularly as the average holding period decreases.< /strong>

 

Despite almost nothing actually going on this week, as the market was virtually unchanged for the first 3 days of trading of this 4 day trading week, it was another good week.

It was nice to string another one to last week’s nice week, as February 2015 has been in complete contra-distinction to January, although comparatively speaking, January 2015 was better than the broad market had performed.

Still, while it is nice to out-perform, it only really matters, in the long run, if that out-performance means that you have more money after sitting down and counting your marbles, beans or whatever you play with.

It has been a while since having so many positions assigned at once and it was good being able to replenish the cash pile.

I always like to run a “what if” when a position gets assigned, That assumes that I would have been smart enough to have sold the assigned position at its price to end the week and then I compare that potential net profit to the net profit of selling at the strike price chosen and adding in the option premiums.

Sometimes, as in this week’s UAL purchase, it would have been better not having sold the options, sometimes it’s a close call, but more often it is a winning situation.

Even then, there are certain positions that I want to immediately buy back, such as GM or TMUS, but put that sort of emotional feeling aside to wait for a better opportunity, that may or may not come in the near future.

With this week’s assignments I have more cash than in a while, but would actually still like to have that pile grow some more.

But, I don’t think that I’ll let that get in the way of putting some of that money back to work as the new monthly cycle gets ready to begin.

With a few positions already set to expire next week and volatility falling, there is suddenly less appeal to looking for extended weekly options, as the premiums are getting less and less attractive as you add more and more time to the contract.

At the moment those positions expiring next week are all in the ballpark for either rollovers or assignments and either of those would be fine, but the more likely assignment of those positions appear to be, the more likely I’d be willing to dip into the cash reserve with the expectation that it was simply being recycled.

With almost nothing now set to expire in the middle of the month and a fair number set to expire at the end of the March 2015 cycle, I will probably focus on a week at a time and continuing to try and recycle whatever resides in the cash pile, as best as possible.

Next week has FOMC Chairman Yellen testifying to Congress, so there may be some ups and downs, especially as the bond market has been more volatile of late and large moves in that area can have some profound effects on equities, as well.

I won’t worry about that too much, as the more you try and apply some logic or thougthful rigor to understanding the market’s dynamic the more you realize that it’s worthless using rational thought processes to try and understand anything that is irrational.

In case you haven’t realized it, for all of the dependence on data, the market is extremely irrational, but you learn to deal with it, just as you learn to deal with a 2 year old.

 

This week’s details may be seen in the Weekly Performance spreadsheet * or in the PDF file, as well as as in the summary.below

(Note: Duplicate mention of positions reflects different priced lots):



New Positions Opened:   AXP, UAL, WNR

Puts Closed in order to take profits:  none

Calls Rolled over, taking profits, into the next weekly cycle:  GDX, GDX (puts)

Calls Rolled over, taking profits, into extended weekly cycle:  none

Calls Rolled over, taking profits, into the monthly cycle: none

Calls Rolled Over, taking profits, into a future monthly cycle:  none

Calls Rolled Up, taking net profits into same cyclenone

New STO:  EMC (3/20)

Put contracts expired: none

Put contracts rolled over: none

Long term call contracts sold:  none

Calls Assigned: DOW, GM, LXK, MET, UAL, TMUS

Calls Expired:  AZN, FAST

Puts Assigned:  none

Stock positions Closed to take profits:  none

Stock positions Closed to take losses: none

Calls Closed to Take Profits: none

Ex-dividend Positions: MAT (2/17 $0.38), AZN (2/18 $1.88), RIG (2/18 $0.75), WNR (2/18 $0.30)

Ex-dividend Positions Next WeekSBGI (2/25 $0.16), ANF (2/27 $0.20)

 

 

For the coming week the existing positions have lots that still require the sale of contracts:   AGQ, ANF, AZN, CHK, CLF, COH, FAST, FCX, HAL, HFC, .INTC, JCP, JOY, LVS, MAT, MCP, MOS,  NEM, RIG, SBGI, WFM, WLT (See “Weekly Performance” spreadsheet or PDF file)



* If you don’t have a program to read or modify spreadsheets, you can download the OpenOffice Suite at no cost.



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Daily Market Update – February 20, 2015

 

  

 

Daily Market Update – February 20, 2015 (7:45 AM)

The Week in Review will be posted by 6 PM and the Weekend Update will be posted by Noon on Sunday.

 

Today’s possible trades include:

Assignments:  DOW, GM, LXK, MET TMUS

RolloversUAL

ExpirationsAZN, FAST

 

The following positions were ex-dividend this week:  MAT (2/17 $0.38), RIG (2/18 $0.75), AZN (2/18 $1.88), WNR (2/18 $0.30)

The following will be ex-dividend next week:  SBGI (2/25 $0.16)

 

Trades, if any, will be attempted to be made by 3:30 PM EDT.

 

 

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